An Organizational Approach to the Design of Patent Law

6 VERTINSKY FINAL_JAD (DO NOT DELETE) 2/27/2012 2:20 PM
2012] AN ORGANIZATIONAL APPROACH 247
The “new property rights” literature centers around the
idea that property rights become important where contracts are
incomplete or otherwise difficult to enforce, either because of
unforeseen contingencies, costs of writing contracts, or costs of
enforcement. 164 In these cases, as illustrated by pioneers of the
approach such as Oliver Hart, ownership of the underlying assets
becomes critical in determining the level of investment in
and the allocation of benefits from the assets. 165 This incomplete
contracting approach has been usefully applied to explain
observed patterns of ownership over patents, such as why firms
contracting for research and development services might assign
resulting patent rights to the firm providing the services. 166
Critical questions for contemporary patent policy include how
patents can be used to address challenges of team production
and collaboration between different organizations, particularly
public-private partnerships. 167
The organizational approach provides a theoretical underpinning
for many property rights-based proposals for patent reform,
as described further in Part IV, by explaining when and
why the predictability and allocation of property rights over inventions
matters. It also anchors competing models, including
those based on incomplete contracts, property rights, and
transaction costs, in a larger framework that can accommodate
164. See discussion of new property rights in Merges, supra note 15, at
1484–85 (discussing that the New Property Rights approach was pioneered by
Oliver Hart, Sanford J. Grossman, and John Moore). See generally Sanford J.
Grossman & Oliver D. Hart, The Costs and Benefits of Ownership: A Theory of
Vertical and Lateral Integration, 94 J. POL. ECON. 691, 716 (1986); Oliver Hart
& John Moore, Property Rights and the Nature of the Firm, 98 J. POL. ECON.
1119, 1121–25 (1990) (assessing the different costs of transactions carried out
within a firm and those carried out through the market).
165. See Oliver Hart & John Moore, Foundations of Incomplete Contracts,
66 REV. ECON. STUD. 115, 132–35 (1999); Jean Tirole, Incomplete Contracts:
Where Do We Stand? 67 ECONOMETRICA 741, 743–44 (1999) (examining how
incomplete contracts literature can help us to understand economic phenomena
such as the patent system, and taking stock of the strengths and limits of
the literature).
166. See Merges, supra note 15, at 1484–85, for discussion of the New
Property Rights approach and other examples. See also Ashish Arora & Robert
P. Merges, Specialized Supply Firms, Property Rights, and Firm Boundaries,
13 INDUS. & CORP. CHANGE 451, 460–70 (2004); Philippe Aghion & Jean
Tirole, The Management of Innovation, 109 Q.J. ECON. 1185, 1189–97 (1994).
167. See e.g., ROCHELLE DREYFUSS, Commodifying Collaborative Research,
in THE COMMODIFICATION OF INFORMATION, (Neil Netanel & Neva
Elkin Koran, eds., 2002) (examines challenges that commodification of ideas
via patent rights creates for collaborative projects and the need to refine patent
laws to address increasingly team based discovery).